This past weekend I attended the Penn Blockchain conference at Wharton business school in Philadelphia. The conference brought together leaders in the Blockchain arena from all over the globe and in particular one of its earliest pioneers, Charlie Lee, the founder of Litecoin. 10 different panels were held, 2 happening simultaneously in different rooms. The sessions focused on Blockchain and Finance, China, Digital Securities, Investments, Legal landscape, Engineering, Ecosystem, and a final closing panel.
Bankers & Blockchain
One of the first panels was focused on Blockchain and Finance and participants included HSBC, Axoni, Nabartham, and OCC. Most of this panel shared the same opinion with the exception of HSBC. Nabartham believed that its important to keep trust or raise the level of trust without decentralized networks. The question they asked was how to provide immutability without massive decentralization. HSBC stated that they need a governing body controlling who is on and operating the legal enforceable of that rule book. Axoni felt that we are going back to the future with new tech but its important to study the past and realize decentralization was the wild west. HSBC is content with their current infrastructure and hyper efficient with centralization, that they are the biggest bank in the world and have built their own Blockchain but not at all interested in Cryptocurrencies and Digital Securities. Interestingly, HSBC did state that if Bitcoin became a globally dominant asset, they would just buy it.
Nabartham thinks operational efficiency is the future of growth. User experience is the most important aspect and data is the new oil. Interestingly, they would consider offering digital assets to diversify offerings, and believe Blockchain is the new paradigm of data infrastructure. Essentially, digital assets would create new revenue streams to keep new clients with them. HSBC is taking a step back from the Token economy because of the lack of predictability and a risk premium would need to be attached to the price if that ever happened. After hearing this panel I got the sense that the big banks are either accumulating digital assets behind the scenes and not ready to publicize their intentions yet as they dropped several hints of waiting for more growth in the market and letting the pioneers pave the way now before they enter.
Digital Securities – The New ICO?
One of the most talked about emerging ideas of 2018 and 2019 were “Security Tokens” or Digital Securities. While still brand new, they would allow digital shares of new companies that could be programmed with different functions and tied to real world assets such as real estate and fine art. They also have the capability to bring liquidity to markets that were not liquid before. One of the early pioneers of this idea was “Polymath” which did an ICO in late 2017. At the time, it had mixed reviews but now all of the talk is surrounding Digital Securities. The panels were lead by Securitize, Liquidity Digital, Verify Investor, NovaBlock Capital, Sharespost, Wall Street Alliance, Union Square Ventures and SIG.
Most of these talks had a mixed point of view, one side was for radical decentralization and the other was merging with Wall Street and operating under full regulation. Many of the developers have a keen interest in a decentralized economy while Security Token issuers are doing their best to follow the centralized systems to gain acceptance for projects looking to raise funds and establish a legal presence unlike ICOs which were a bit of a free for all, however they did represent decentralization. Union Square Ventures advised the audience to look up “Fractional Reserve Banking” to understand the future of Cryptocurrencies.
Tokenizing funds, real estate and fine art would allow global participation and automating the back end process according to NovaBlock Capital. Securitize tapped in by saying how complicated it is to buy and sell securities and code can solve this in just minutes, simplifying peoples lives and taking friction out of the market. What concerns investors right now is that this emerging industry is so new, and there are still many problems to solve. It may be a bit early for the startup scene and some of these companies hoping to offer a digital security may have to wait a bit longer for the market to come to fruition.
There were benefits to Tokenization according to Jor Law of Verify Investor. This was an interesting statement because he mentioned that it changed market psychology and human behavior. People became interested in something they were not interested in before. Comments were also made by NovaBlock about changing the current accreditation laws so that they are more lenient for specialist in certain fields who want to invest, instead of a general $200K per year or $1M net worth, thus designing the system for the rich to get richer and not allowing smaller investors to enter. This comment did make a lot of sense. Why can’t a specialist be allowed to participate in an investment if they have specialized knowledge in that field related to the investment.
All over the world the discussion revolved around government regulations on the Blockchain space. Cities across the globe have delayed making decisions on Initial Coin Offerings, Security Token Offerings, ETFs, and a vast array of laws that are not even certain yet. I often think of Napster in the early 2000’s and similar P2P services that allowed music downloads. It was global and decentralized in a way but the music industry was furious. Lawsuits were served and the markets shifted in so many ways to break the free trading markets. I believe history will repeat itself in Blockchain but this time it is going to be much more vast. Governance models are still being decided, markets are still reacting to new processes, Decentralized Applications need millions of users, not thousands, protocols need to be defined and Layer 2 solutions similar to Lightning Network need to be established.
Jalak Jobanputra of Future Perfect Ventures stated that developing countries like Africa present a lot of opportunity and have interesting markets and although many of these countries have their problems, it allows experimentation. The debate went on about the “Crypto Anarchist” and how they will continue in this industry, and different ways to pick Crypto investments.
Ari Paul & Charlie Lee
I liked all of the panels but my favorite was listening to Ari Paul of BlockTower Capital and Charlie Lee, inventor of Litecoin. Ari Paul is a great orator and explains things in a simple way so that everyone can understand the statements he makes. Often when you attend a Crypto oriented event the presenters can sometimes get overly technical and this confuses the listeners. Paul built BlockTower in 2017 during the Bubble period and has continued to keep investing in the space while becoming a predominant figure. Charlie Lee appeared shortly after Satoshi Nakamoto disappeared from Forums and brought Litecoin. Fortune magazine asked Charlie what he thinks of a “Facebook Coin” and he stated that “it would not excite me” but believes Crypto is hard to use. He is fascinated with cross chain atomic swaps and how they “work like magic.” There are cool things being built on top of Bitcoin and Litecoin. He wants to make Litecoin more fungible and MimbleWimble is a trending protocol relying on strong cryptographic primitives. It uses what are referred to as elliptic curve cryptography that require smaller keys than other types, it also uses less data storage than the Bitcoin network. A popular example of this is the Grin Coin.
This conference provided a confirmation that the Cryptocurrency world is not going to die, it is going to continue to expand and grow. Blockchain is still in its very early stages and people are becoming more and more fascinated with this industry. I get the same impression and think it will take a few years before we do get adoption from the masses, popular decentralized applications and begin to operate in a more decentralized world. The foundation is being laid now and we should expect to see huge advancements in 2020.